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Household Debt During the Financial Crisis: Micro-Evidence from Chile

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  • Roberto Álvarez
  • Luis Opazo
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    Abstract

    We examine evidence from a data panel from 2006 to 2009 to explore how chilean households were affected by the negative income shock observed during the recent financial crisis. our results show that there is a negative and significant relationship between income shocks and changes in consumption debt. this suggests that increasing debt allowed households to smooth consumption during the financial crisis and provides new empirical evidence about the importance of financial constraints in a developing country. we find evidence of heterogeneous effects by type of consumption debt and across households. our results show that reduction in income increased indebtedness with banking institutions, but not with non-banking creditors. across households, these results are driven mainly by those with financial assets and low levels of indebtedness before the crisis.

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    File URL: http://www.bcentral.cl/estudios/documentos-trabajo/pdf/dtbc695.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 695.

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    Date of creation: Jul 2013
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    Handle: RePEc:chb:bcchwp:695

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    1. Thomas Philippon & Virgiliu Midrigan, 2011. "Household Leverage and the Recession," NBER Working Papers 16965, National Bureau of Economic Research, Inc.
    2. Michael D. Hurd & Susann Rohwedder, 2010. "Effects of the Financial Crisis and Great Recession on American Households," NBER Working Papers 16407, National Bureau of Economic Research, Inc.
    3. Atif R. Mian & Amir Sufi, 2010. "Household Leverage and the Recession of 2007 to 2009," NBER Working Papers 15896, National Bureau of Economic Research, Inc.
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